Medicare Meets Mephistopheles

Medicare Meets Mephistopheles

Hyman, David A

Difficile est saturant non scribere1

I. Introduction

Medicare is the 800 pound gorilla of American health policy. Covering approximately forty million (primarily elderly) Americans, it funnels $250 billion per year into the pockets of physicians, hospitals, clinical laboratories, home health agencies, physical therapists, social workers, and a veritable army of other health professionals. Medicare’s administered pricing system can, whether by accident or design, shower largesse on particular regions, provider groups, and device manufacturers while starving others-with predictable consequences on the availability of the underlying goods and services. Medicare’s footprint is so large that its every move has spill-over effects on the rest of the market.

Given Medicare’s centrality to health care and health policy, it is not surprising that it has attracted considerable academic attention. lists more than 800 books that mention Medicare.2 Every year, approximately 500 law review articles are published that mention Medicare-100 in the title.3 The participants in this symposium account for numerous books and scores of articles on the subject.

Although I have written articles on fraud and abuse, patient dumping, and the quality of care received by Medicare beneficiaries, I am a comparative newcomer to the subject of Medicare.4 When I start working on an article, my invariant strategy is to obtain and read as many prior writings on the subject as I can locate. In short order, stacks of books and articles on Medicare soon filled my office. After considerable research and many late nights, I completed an article for this Symposium. My article analyzed the Medicare program from a competition policy perspective, identified a few minor problems for correction, and lauded the contributions of Medicare to health policy and social justice.5 The article then waxed wroth about the vicious lies and calumny told about Medicare by its detractors.6

Word apparently got out that I was working on an article about Medicare. A mysterious document appeared in my inbox at the University of Maryland School of Law shortly before the conference. My secretary informed me that a courier clothed in black and red, driving a red Lamborghini Diablo, delivered the document.7 The mailer bears an official-looking sticker, warning those who handle it that the envelope is made with asbestos fibers. The mailer bears an extraordinary amount of stamps, each bearing the likeness of Rodin’s Gates of Hell.8 The document within the mailer is written on black parchment, reeks of brimstone, and singes the fingers of those unwary enough to handle it without insulated gloves. The words on each page glow red against the black parchment. The cover of the document is stamped with the legend, “Abandon Hope All Ye Who Read Further,” and a reproduction of Hieronymus Bosch’s infamous painting of the seven deadly sins.9 The document purports to be a memo from a junior bureaucrat (Underling Demon 666, Deputy Assistant Special Coordinator for Accelerating Recruitment (DASCAR) in the Department of Illness and Satanic Services (DISS)) to the chief executive of his organization (Satan) reporting on the progress of their plans to use Medicare to undermine the American republic.

After reading the document, I immediately forwarded a copy to the Centers for Medicare and Medicaid Services (CMS).10 I am told that they have “top men” studying the document. ‘ ‘ CMS was unable to provide any indication of when or whether they would officially release the document, let alone their analysis-although one anonymous source suggested that it would not take any longer than the finalization of the EMTALA regulations.12

The document was clearly important and deserved circulation to as wide an audience as possible-if only to alert the public of the depths to which opponents of Medicare would stoop to slime this sacred pillar of intergenerational equity.13 I was faced with a wrenching decision. Do I submit my own article, providing yet another valentine to the virtues of Medicare, allowing me to take my rightful place at the head of the crowd of the program’s adoring academic enthusiasts?14 Or, do I submit the demonic words (appropriately disclaimed, of course) to alert the populace of the crafty scheming by the insidious reactionary forces that oppose truth, justice, and the American way-all of which are exemplified in that pillar of the Great Society, Medicare?

Despite considerable misgivings, I ultimately decided to scrap my own article and submit the document I received in the mail for publication in its place. I hope readers will not judge me too harshly for passing on the opportunity to declaim the depths of my unceasing admiration for those who bequeathed us the Medicare program, those who legislatively tinker with it every year or two, those who do their best to administer it and those who view their role in life as worshipping its every feature. I particularly regret the fact that this submission will forever disqualify me from taking my rightful place in the forefront of the legions of Medicare’s academic enthusiasts, as I fear this group will conclude that the observations contained herein are my own and not those of the prince of darkness and his minions.15

Readers can judge for themselves the bona fides of the document, which is reproduced in its entirety below, and the merits of the observations contained therein. As for an appropriate disclaimer to the document itself, it is hard to improve on Mark Twain:

Persons attempting to find a motive in this narrative will be prosecuted; persons attempting to find a moral in it will be banished; persons attempting to find a plot in it will be shot.16

Per your request, I report herein on behalf of DISS on the progress of our attempts to corrupt the American republic. Happily, our market share in the United States grows with every passing day. Our growth has been particularly precipitous since we repackaged our product in 1965.

As you know, the recipe we have used for centuries (avarice, gluttony, envy, sloth, lust, anger and vanity-known collectively hereafter as the “Seven Deadly Sins”) has worked perfectly well in most of the known world.17 Unfortunately, Americans have proved curiously resistant to the charms of the Seven Deadly Sins, even though your status as an American citizen should have been quite helpful in this regard.18 Through almost two centuries, Americans persisted in doing unto others as they would have done unto themselves, working hard and playing by the rules, staying in school, saving for a rainy day, going to church, donating to charities, volunteering their time to worthy causes, and generally behaving like goody-two-shoes at every conceivable occasion. Although we have long had considerable success with our recruiting efforts among some groups of Americans (that is, members of Congress and lawyers), these groups were unable to do serious damage as long as the rest of the population behaved themselves.19

As such, it was a stroke of evil genius for your eminence to come up with the idea of creating a governmental program that would corrupt everything and everyone it touched.20 The program works insidiously so that the citizenry is unaware of its evils until it is too late. Indeed, they vigorously defend the program against all criticism, and, ironically enough, believe the program’s critics are allied with us!

I refer, of course, to the Medicare program, whose every feature bears the distinctive stamp of your subtle genius. Permit me to catalog (in Part II of this memo) how the features of the program reflect each of the Seven Deadly Sins. Part III of this memo outlines how Medicare also undermines two distinctively American virtues: thrift and truthfulness. Part FV of this memo offers a brief conclusion.

II. Medicare and the Seven Deadly Sins

As you know, the Seven Deadly Sins were first cataloged by Pope Gregory and have since been analyzed by such luminaries as St. Thomas Aquinas, Dante, Chaucer, and C.S. Lewis.21 They have also been featured in recent Hollywood movies and a wide array of advertisements.22 The remarkable thing is that your Satanic majesty was able to develop a program incorporating each and every one of the Seven Deadly Sins, while simultaneously persuading the populace that it included none of them. This memo reviews each of the Seven Deadly Sins and details the ways in which the Medicare program incorporates and reinforces each one.

A. Avarice

Avarice primarily affects the 1.3 million providers, ranging from physicians and podiatrists to hospitals, nursing homes, and home health agencies, who collectively deliver goods and services to Medicare beneficiaries and receive more than $250 billion per year for their trouble.23 Some of these providers were wary of the long-term consequences of inviting the federal government to become a major purchaser of health care services. However, the government bought them off with promises of staggering amounts of money and no interference in their professional autonomy. Of course, you broke both of these promises, the latter first.24

Medicare has resulted in extraordinary wealth for providers-not quite beyond the dreams of avarice, but close. Yet, the whole point of avarice is that more than most is never quite enough, and providers ceaselessly agitate for increases in Medicare payments. As a concentrated special interest, providers have had considerable success in extracting ever-increasing sums from the federal fisc, in many instances convincing Congress to specify payment rates well in excess of those that would prevail in a free market.25 Consistent with our larger goals, Medicare’s compensation arrangements pay providers based on their inputs (procedures performed or time spent) and not their outputs (high quality care actually delivered)-with predictable results on the quality and cost of care actually delivered.26

To be sure, Congress recognized that some providers would be more avaricious than others. Congress accordingly enacted a series of fraud control provisions (anti-kickback, self-referral, and civil false claims) creating substantial criminal and civil penalties for fraud and abuse, along with a multidimensional enforcement initiative.27 Although this fraud control program was well-intended, we have, through a variety of skillfiil measures, successfully redirected it to encourage our larger goals.

First, we ensured that the reach of the fraud statutes would exceed their (functionally defensible) grasp by criminalizing conduct well beyond that which was necessary to protect the program. Indeed, we criminalized conduct that results in benefits to patients without fiscal harm to the program. In short order, a “speakeasy” norm developed among otherwise law-abiding lawyers and providers, with predictable consequences as this social norm came into conflict with the norms of fraud control personnel.28 The qui tarn provisions of the False Claims Act added fuel to the fire.29

Second, we whipped up a frenzy among the public about health care fraud and created the widespread belief that fraud and abuse are pervasive.30 Indeed, 72% of the American public reportedly believes that Medicare would have no financial problems if fraud and abuse were eliminated, a perspective utterly uninformed by any connection with reality, but one that serves our purposes nonetheless.31 Over time, Americans will begin to doubt the good faith and reputation for fair dealing that has hitherto prevailed among health care providers. This demoralization will ultimately redound to our benefit.32

B. Gluttony

Gluttony primarily affects Medicare beneficiaries. At the outset of the Medicare program, the costs of care (both per-beneficiary and total) were relatively modest, and beneficiaries were responsible for a substantial percentage of the cost of the care that they received fromnonhospital sources.33 However, the politics of Medicare created a one-way ratchet, shifting the distribution of costs of the Medicare program to the working population and away from Medicare beneficiaries. Because the working population is, as a group, less well off than those on Medicare, our efforts have resulted in a reverse-Robin Hood health care scheme that robs from the (working) poor and gives to the middle class and the rich.34 The ceaseless lobbying of the elderly population and the advocates for a Medicare prescription drug benefit, when most of the elderly already receive far more from the public trough than they ever paid in (and more than is economically sustainable regardless of whether a prescription drug benefit is added), further demonstrate the gluttony that Medicare evokes.35

The best confirmation of the gluttony evoked by Medicare was the repeal of the Medicare Catastrophic Coverage Act of 1988.36 Congress passed this Act with good intentions, overwhelming bipartisan support, and the enthusiastic endorsement of groups purporting to represent the elderly. The Act created coverage against catastrophic medical expenditures for Medicare beneficiaries-and coverage against catastrophes is, after all, the core purpose of insurance.37 The Act also provided for prescription drug coverage, a subject which continues to vex Congress fifteen years later.38 In a humiliating aboutface, Congress, under immense public pressure, repealed the Catastrophic Coverage Act less than a year after enacting it. One of the most searing images for a risk-averse Congressman desirous of re-election was the spectacle of Dan Rostenkowski, House Ways and Means Chairman and one of the most powerful men in Congress, fleeing a crowd of irate senior citizens protesting the Catastrophic Coverage Act.39 One senior citizen even jumped on the hood of Congressman Rostenkowski’s car-a visual image beyond even our wildest expectations.40 The fact that Congressman Rostenkowski lost his bid for reelection shortly after this incident reinforced the risks of “messing with Medicare” for even the dullest members of Congress. The principal sin of the Catastrophic Coverage Act (and I use the term ironically because the bill was actually exceedingly virtuous and we benefited greatly from its repeal) was that it imposed the costs of expanded coverage on the population that would benefit from the expansion.41 Predictably enough, gluttony turns out to be less appealing if one must foot the bill.

Thankfully, the voting power of the elderly has ensured that the “mistake” of the Catastrophic Coverage Act will never be repeated. Every subsequent election cycle has featured shameless pandering by both political parties to the preferences of the elderly for more extensive (and expensive) Medicare coverage. Of course, this gluttony only accelerates the day of reckoning that we have worked toward since you first proposed the Medicare program.

C. Envy

Envy has been the most disappointing of the Seven Deadly Sins. We have been, at best, only moderately successful at evoking envy among the nonelderly population. Those not covered by Medicare have certainly grown tired of the restrictions and limitations imposed by the private coverage market. As the last bastion of fee-for-service health care, Medicare is routinely presented as if it offers open-ended affordable access to all necessary goods and services without government red-tape. Yet popular envy has been tempered by the realization that Medicare is only “affordable” because of the infusion of billions and billions of dollars in cross-subsidies from the rest of the population. Despite our best attempts to package it as “Medicare for all,” there has been no popular uprising in favor of a one-payor system.

Part of our problem is that it has proven difficult to persuade people that Medicare is “hassle-free,” particularly when providers and prominent Congressmen routinely complain about the inadequacies and inefficiencies of CMS and promise to eliminate it.42 We can take some credit for this outcome because we persuaded Congress to increase the obligations of CMS while simultaneously starving them of resources, all the while encouraging Medicare’s proponents to brag about its low administrative overhead.43

We have also had some success creating envy within the Medicare population by carefully designing the program to maximize hard feelings along geographic lines. Because local costs of production and treatment patterns directly affect reimbursement, the cost to the Medicare program (and hence the amount of resources spent per beneficiary) varies greatly among the several states, as well as within those states.44 In the nation as a whole, average Medicare payments per beneficiary were $5,994 in Fiscal Year 2001, but they ranged from a high of $8,099 in Louisiana to a low of $3,414 in Iowa.45 One group of commentators has estimated that we could buy each and every Medicare beneficiary in Florida who agreed to receive their health care in Minnesota a fully-loaded Lexus and the Medicare program would still come out ahead.46 Although the Dartmouth Atlas47 helped surface some of these disparities, most of the credit goes to Medicare managed care, which required CMS to determine and publish the average payments per Medicare beneficiary per county in order to calculate the (somewhat-lesser) amount that should be paid to a Medicare-fChoice Organization (MCO) providing services to a Medicare beneficiary in that county.48 To the extent the non-risk-adjusted premium exceeded the competitive level of payment, MCOs dissipated payments through non-price competition, resulting in visibly high MCO benefits for Medicare beneficiaries in some counties and “bare-bones” benefits for beneficiaries in others.49

This geographically-driven envy has precipitated a “formula fight” among the several states, complete with litigation,50 coalitions of aggrieved states and senior citizens,51 and coverage in newspapers and editorials.52 We are particularly lucky that the Senate Finance Committee is disproportionately composed of Senators from low-cost states who are extremely aggrieved that the Medicare money tain does not unload a “fair share” of Medicare money in their states.53 We expect this issue to become even more salient if Medicare MCOs in high-cost areas start attracting patients by paying them cold hard cash and not just offering enhanced benefits.

We have also had considerable success with envy among providers. Those currently included within Medicare compare their payment rate to that of other covered providers and ceaselessly agitate to have “their” services compensated more highly. Providers who are excluded from Medicare agitate to be included. Medical device manufacturers lobby to have their devices covered and lobby against Medicare’s attempts to impose a cost-effectiveness test on coverage.54 Interestingly, pharmaceutical manufacturers are the only organized group that has no real interest in expanding their presence in Medicare and they have lobbied heavily against adding an outpatient prescription drug benefit.55

D. Sloth

Sloth affects two important groups: legislators and program administrators. To be sure, Congress tinkers with numerous aspects of Medicare on a more-orless annual basis, but it has paid almost no attention to the long-term financial problems facing Medicare. As outlined in Part III, Medicare’s financing is a ticking time-bomb that will explode within the next two generations. The sooner this problem is addressed, the less severe the resulting dislocations will be. Yet legislative sloth, confirmed by past history, ensures that any solution will be deferred until a true crisis emerges-and by the time the crisis emerges, legislators will have more difficulty solving the problem. So much for the oftheard claims about the superior ability of government to mind the interests of future generations and attend to long-term problems.56 Your efforts in selling this myth have been particularly effective.

Program administrators are also affected by sloth, at least with regard to quality and, to a lesser extent, fraud control. When one is purchasing health care, cost, quality, and access are all important. Yet, Medicare program administrators care a lot about cost, less about access, and, at least historically, not at all about quality.57 This sloth is no accident. Indeed, at your behest, Medicare was designed at every turn to focus program administrators on cost and access and to discount quality.58 The Medicare statute explicitly provides that any provider who meets the entry requirements is entitled to participate in the program, and that patients are free to choose any provider who will have them.59 Thus, CMS has very little ability to exclude providers who deliver poor quality care or to reward providers whose quality is exemplary.60 Similarly, the administrative structure of Medicare-all bills are processed by carriers and intermediaries, who view their job as paying bills as quickly and cheaply as possible-also helped contribute to administrative sloth.61

It was also an act of inspired genius to draw the original administrators of Medicare from the ranks of the Social security Administration. Social security administrators had considerable experience and expertise in running a program that was based on the payment of a sum certain to qualified beneficiaries and no experience whatsoever with purchasing health care services. The predictable result was that CMS personnel were extremely focused on whether beneficiaries had access to the statutorily-specified services, the total amount of money required to accomplish that objective, and the prompt and efficient processing and payment of claims, and they paid relatively little attention to everything else. Shoveling money out the door to purchase health care services is, of course, not the same thing as purchasing high-quality health care.

These patterns have continued to the present day. Even if program administrators were inclined to exercise their marketing muscle on behalf of program beneficiaries, the basic structure of Medicare-the “good government/due process” requirement for public notice and comment on virtually everything it does, the chronic under-funding of administrative capacity, and the multiplicity of tasks that CMS is charged with-means that sloth will continue to prevail regardless of the enthusiasm, hard work, and promises made by program administrators.62

Finally, in a diabolical stroke of genius, we have succeeded in undermining all attempts to rouse administrators from their sloth through the judicious use of political oversight.63 Any attempt by CMS to transform itself from a passive payor of bills to an active manager with broad responsibility for beneficiary health by using tools such as selective contracting and payment for performance, among others, will necessarily result in shifts in patient flows (and payments) among providers. Adversely affected providers lobby heavily to forestall this fate, with the outcome dictated by the political power of those providers instead of the quality and efficiency with which the underlying services are delivered.64 Demonstration projects have triggered similar dynamics, when a demonstration project is successful, CMS lacks the authority to implement it more broadly, and when a demonstration is not successful, political constraints can make it impossible to terminate.65 Political opposition killed at least one demonstration project before it ever got off the ground.66 Those advocating such efforts will also be legislatively savaged for their troubles. As such, sloth has predictably become the dominant strategy for riskaverse program administrators.

E. Lust

The Medicare program induces lust for program expansion and political power among members of the Democratic Party.67 Democrats lust to extend the “security” of Medicare to the balance of the population and ceaselessly campaign to do so. These unknowing pawns write endlessly about the supposed virtues of a government-run health system, monopolizing the op-ed page of the New York Times and major medical journals.68 In a real tribute to your powers, these advocates actually believe they are engaged in God’s work! Although we occasionally encourage their efforts by allowing public referenda on the adoption of a one-payor system69 and periodically tantalize them with proposals to add the “near-elderly” to Medicare,70 we adhere to your original plan to resist program expansion at all costs. As you correctly perceived many years ago, allowing everyone into Medicare will immediately bankrupt the program because the cross-subsidies that sustain Medicare are only achievable if there are sufficient marks outside the program to pay the necessary funds into the program. Program beneficiaries understand this point perfectly well. The demise of the Clinton plan was inevitable once it became clear that the plan would “take” from the elderly and “give” to the uninsured.71 We are far better off delaying the day of reckoning by a few years and allowing the gluttony of Medicare beneficiaries and the passage of time to increase the number of unsustainable commitments, meaning that the fall of the American republic from grace will be even more precipitous.

Medicare also provides Democrats with the tools to satisfy their lust for power. Of course, the lust for power is innate in all politicians and political parties, but Democrats disproportionately emphasize Medicare in their appeals to the electorate. This strategy is consistent with the basic position of Democrats that the “highest purpose of government is to send people checks in the mail.”72 The proof of these claims is in the pudding. Political polling has consistently demonstrated that voters trust the Democrats more than the Republicans when it comes to Medicare.73 Exploiting this asymmetry, Democrats use Medicare as a bludgeon against their Republican adversaries at every conceivable turn regardless of the actual differences between the parties, the bipartisanship of the effort, and the financial straits in which Medicare finds itself.

For example, in the 2002 Congressional election, one Maryland Democratic candidate argued that his Republican opponent was “antiMedicare” because she voted for the 1986 Catastrophic Coverage Act-along with the rest of the Maryland Congressional delegation and an overwhelming majority of Congress.74 More generally, the Democratic party’s “talking points” for the 2002 election reduced to the claim that the Republicans did not care about the elderly, a fact “demonstrated” by their refusal to enact a Medicare prescription drug benefit even though the (Republican) House had actually passed a Medicare prescription drug benefit-albeit one not to the taste of the Democrats. In the 2000 presidential election, Vice President Gore repeatedly accused the Republicans of planning to cut Medicare to pay for tax cuts.75 In the previous two presidential elections, President Clinton was particularly effective at using Medicare to score political points against the Republicans, even using it to recover from the devastating losses suffered by the Democrats in the 1994 election.76 Indeed, the basis for President Clinton’s 1996 re-election campaign was referred to by party operatives as M2E2, or MeMe, short for Medicare, Medicaid, education and the environment.77

These efforts have been extraordinarily successful. Significant portions of the elderly population distrust Republicans when it comes to Medicare, even though the financial differences between the Republican and Democratic proposals for Medicare are exceedingly modest.78 The Democratic message has been quite effective in overcoming the collective action problems of organizing the elderly, but it has been less successful in creating broad-based confidence in the program. In a recent poll, approximately one-half of young women polled thought that the soap opera General Hospital would outlast Medicare.79

From a larger philosophical perspective,

Chris Matthews has usefully divided the parties into the “mommy parry,” the Democrats, and the “daddy party,” the Republicans. When times are good, you turn to mom, who promises to provide more services and more compassion, and demands less personal responsibility. But when threats loom, Americans turn to dad, who takes no guff from us but also reaches for the Winchester hanging over the front door when hostile strangers approach.

As the quintessential mommy party program, Medicare has been a critical part of the platform for Democrats and the key to victory in many swing districts. I note in passing that it was only with considerable last minute lobbying that we were able to forestall attempts to rename HCFA the Medicare and Medicaid Agency. The acronym for the new agency would have been MAMA-allowing even the dimmest to see the implications of your plans.81

To be sure, there is some evidence that Medicare has become an equalopportunity club for use against one’s political opponents, regardless of party affiliation. As a former Democrat Congressman ruefully observed,

[T]here is no better subject for effective negative campaigning than a vote to slow the growth of the Medicare program with whatever cost cutting or benefit denying or premium increasing it may involve.

Any member knows that however good or decent a Medicare reform bill may be, his opponent in his next campaign will use a vote for that bill against him. It does not take a clairvoyant to see what the television commercial will be: “When he had the chance to protect Medicare, the program that provides health care to all of us in our vulnerable old age, our congressman, [your name here], voted instead to protect the special interests by increasing the premiums.” Forget about all the cuts in payment to doctors and hospitals, which pay for 90 percent of the funding changes. “He voted to protect the special interests by increasing the premiums we all must pay for doctor and hospital care.” An opponent has to be an idiot not to make campaign hay with that vote.82

Thus, Medicare has proven to be a cost-effective scourge of both political parties, allowing each to satisfy their lust for power, while simultaneously undermining their ability to govern effectively once in office.

F. Anger

Medicare triggers anger among members of the Republican Party. As previously noted, the Democrats have been quite successful at positioning themselves as the protectors of the Medicare program and of program beneficiaries. The Republicans cannot “outbid” the Democrats on Medicare without busting the budget, and Democrats have routinely and effectively demagogued Republican efforts to make even minor revisions to the financing of Medicare and its delivery options. Not surprisingly, Republicans are angry about the effectiveness with which a large command-and-control program, which is inexorably gobbling up an ever increasing share of federal tax revenues, has become a sacrosanct feature of American politics.83 The madder they get, the less credible their efforts to escape the box in which your eminence has placed them.

The poisoning of legislative politics, which results from the combination of Democratic lust and Republican anger, ensures that any reforms to Medicare will not address its fundamental structural flaws. As such, the program remains on auto-pilot, rather like the Titanic bearing down on an iceberg.84 Of course, the sinking of the Titanic closed relatively few of our open accounts. The implosion of the Medicare program and the resulting demoralization costs imposed on the American republic will add tens of millions to our ranks.

G. Vanity

I close with your favorite sin, vanity.85 To some extent, this sin affects virtually everyone touched by Medicare, but the group whose vanity is most greatly affected is health policy analysts.86 Almost without exception, health policy analysts have hailed the virtues of Medicare and excused its dysfunctions, reasoning sub silenîio that a program offering a rotten benefit package and mediocre quality health care is better than no program at all.87 Of course, it is no accident that virtually every one of these health policy analysts is an enthusiastic member of the Democratic Party, for whom the 196Os remain the best of times.88 Among this group, we actually get a two-for-one effect, as lust and vanity work together in a synergistic fashion.

This vanity takes several distinct forms. One form of vanity is the refusal of health policy analysts to acknowledge the highly-variable quality of care provided to Medicare beneficiaries. Normally, policy analysts are stereotypical “goo-goos,” insisting on the dotting of every “I” and the crossing of every “T” before allowing government money to be spent on anything.89 Yet, in Medicare, the same analysts have bestowed their enthusiasm on a program that systematically and routinely pays (and frequently overpays!) for the mistreatment of the vulnerable Americans left in its charge.

Two recent studies offer a useful perspective of our success in these matters. The first study focused on the quality of care provided to Medicare beneficiaries on a state-by-state basis.90 The study examined the care provided to Medicare beneficiaries using twenty-four process-based quality measures involving the prevention or treatment of six medical conditions.91 The six medical conditions (acute myocardial infarction, breast cancer, diabetes, heart failure, pneumonia, and stroke) accounted for a significant amount of morbidity and mortality in the Medicare beneficiary population.92 The process-based measures involved interventions for which there was a strong scientific basis.93 The theoretical goal for each measure was for 100% of qualifying Medicare beneficiaries to receive the intervention.94 In fact, depending on the measure, performance rates in the median state ranged from 24% to 99%. Median performance in the median state was 73%.95 The range of performance rates also varied widely depending on the measure.96 The study clearly documented substantial under-provision of necessary care to Medicare beneficiaries.97

The second study assessed underuse of necessary care in 345,253 randomly selected Medicare beneficiaries during 1994-1996.98 An expert panel developed forty indicators of necessary care (including three indicators of preventive care) and six indicators of avoidable outcomes for fifteen common acute and chronic medical conditions.99 For sixteen of the forty measures, beneficiaries received the indicated care less than two-thirds of the time.100 Beneficiaries received the indicated care 90% of the time for only nine of the forty measures.101 For fourteen of the thirty-seven necessary nonpreventive care indicators, less than two-thirds of beneficiaries received care that a physician panel considered to meet a minimum quality standard.102

These studies confirm that the quality of care received by Medicare beneficiaries as a group is thoroughly unimpressive. Better yet from our perspective, this rotten care does not come cheap. The Medicare program has such inadequate financial controls that it hemorrhages money. Indeed, the Office of the Inspector General for HHS (OIG) believes roughly 7% of Medicare payments, totaling approximately $13 billion per year are “improper.”103 Although the General Accounting Office and OIG routinely issue reports condemning particular financial shenanigans and labeling Medicare a “high risk program,” there has been only limited progress in bringing fiscal discipline to CMS.104

The second form of vanity is the failure of health policy analysts to appreciate the “sauce for the goose” implications of the precedents they have created around the use of Medicare’s purchasing power. In most hospitals, Medicare is the single largest purchaser of health care services. As such, health policy analysts (consistent with their goo-goo inclinations) have eagerly tied the acceptance of Medicare money to a variety of our schemes. These schemes impose ancillary restraints on hospitals that undermine their continued viability (EMTALA),105 condition payment on the satisfaction of every jot and tittle of the thousands of pages of rules and regulations surrounding Medicare (the drafting, interpretation and enforcement of which provide steady employment to the lawyers who have sold their souls to us in exchange for professional success) or simply impose substantial administrative burdens for no good result (PSDA).106

Fortunately (at least from our perspective), the health policy community never realized that these precedents could be turned on their favorite causes, as the spending power can be used to bat from both sides of the political plate. Indeed, federal funding can be used to require private parties to implement activities that are anathema to health policy analysts, their patrons and supporters. Conversely, federal funding can be used to require private parties to terminate activities that are near and dear to the hearts of the same health policy analysts, their patrons, and supporters. For example, the Solomon Amendments107 have been used to force universities and law schools to grant equal access to the military for recruiting purposes. The False Claims Act, which requires regulatory compliance with all federal laws, can be used against institutions whose affirmative action programs do not comply with strict constitutional requirements, and the billions of dollars at stake will encourage these institutions to settle on almost any terms.108 The Baby Doe provisions can be repackaged and redeployed as explicit exercises of the spending power.109 Of course, each change in administration will bring about a dramatic shift in the substantive obligations imposed on all recipients of federal funds. Over time, all recipients will be forced to implement some activities inconsistent with their self-framed missions. This campaign will further our larger agenda of spreading misery and despair, and will dishearten even the strongest advocates of Medicare.

The third manifestation of the vanity of health policy analysts is their enthusiasm for asymmetric arguments. When the Medicare trust fund is “flush,” analysts rebut critics of the program with the observation that Medicare is on sound fiscal footing. When the projected insolvency date grows closer, the same analysts rebut critics by claiming that the trust fund is a meaningless accounting convention and financial projections are inherently unreliable.110

Another example of this approach involves the “case” for prescription drug coverage. Many health policy analysts juxtapose the presence of prescription drug coverage in the private employment-based coverage market with its absence in Medicare and assume that they have made the case for program modification. Yet, when critics argue that the private coverage market has embraced an array of supply-and-demand side restrictions on access to care and that it might be prudent to reform Medicare in an analogous fashion to control program costs, health policy analysts routinely respond that changes in the private market need not be reflected in Medicare. It remains unexplained why taxpayers should subsidize a system for the elderly that has coverage features that are more generous than those the taxpayers are willing and able to buy for themselves. “Sauce for the goose,” anyone?

The final form of vanity is the inability of health policy analysts to perceive the importance of exit and exit rights. In a normal market, vendors decide whether to deal or not. Refusal to deal sends a useful signal about the terms that are being offered. Indeed, exit is a critical component of wellfunctioning markets, as resources are diverted from lower- to higher-valued uses. Yet, in Medicare, health policy analysts treat exit as a mark of disloyalty (as when Medicare managed care organizations decide to pull out of Part C), or as an overt attempt to subvert the self-evident virtues of the program (as when physicians decline to accept new Medicare patients or try to contract with them separately). The criticisms leveled at “concierge” programs reflect a similar lack of understanding of the importance of exit rights (as well as of basic economics).

Admittedly, it is unclear whether the opposition of health policy analysts to exit rights is attributable to their complete ignorance of economics, their position as academics (who developed tenure in order to constrain the exercise of exit rights) or both. It is difficult to determine which effect predominates because most health policy analysts are academics and most academics are ignorant of economics. Regardless of where one comes out on this issue, vanity clearly plays a role in the willingness of health policy analysts to hail Medicare’s “virtues,” whitewash its faults, and attack those who do not share their faith in the “self-evident virtues” of Medicare.

III. Medicare and the Undermining of American Virtues

As you presciently recognized in your memo proposing Medicare, a program incorporating the Seven Deadly Sins would never attain its intended objectives unless we also undermined the American virtues that would otherwise impede our plans. The two distinctively American virtues that most directly threatened our plans were thrift and truthfulness. These virtues figured prominently in the lives of the Founders. Benjamin Franklin celebrated the importance of thrift in numerous influential writings, and George Washington was renowned as the politician who could not tell a lie. American politicians celebrate these virtues, reasoning that they are unelectable if they promise anything else to their constituents. The near-universality of these virtues in the American population made it much more difficult for our plans to proceed on schedule. Thus, we have attacked these virtues on several fronts, using entitlement programs as our principal weapon.

A. Thrift

DISS is simultaneously submitting a detailed memorandum on the impact of Social security on our recruitment efforts and its undermining of the virtue of thrift, so this memorandum focuses on Medicare. As you know, Medicare’s financing provides that revenues secured from current taxpayers fund the medical expenses of current beneficiaries, frequently referred to as “pay as you go.”111 Demographic projections and the ever-increasing cost of health care ensure that the program’s economics are simply unsustainable, even without the addition of a prescription drug benefit. As the summary of the most recent report from the (ironically named) Trustees of the (also ironically named) Part A trust fund stated:

[T]he fundamentals of the financial status of Social security and Medicare under the intermediate economic and demographic assumptions remain highly problematic …. Growing deficits will lead to rapidly mounting pressures on the Federal budget in a decade and exhaustion of trust funds beginning in little more than two decades…. In the long run, these deficits are projected to grow at unsustainable rates.112

Figure 1, which presents Medicare expenditures as a percentage of GDP, documents these phenomena graphically. HI stands for hospital insurance (Part A). SMI stands for Supplemental Medicare Insurance (Part B).

The striking thing about these observations is that they have become so routine that they are routinely ignored.113 Only the imminent “bankruptcy” of the Part A trust fund (less than seven years) is sufficient to rouse the political process from its sloth.114 The consistent approach when attempting “reform” is to fix the short term and ignore the (far more problematic) long term.115 To be sure, Medicare’s short-term financial prospects are the best they have been in some time, but that is because, as Figure 2 demonstrates, Medicare has always been on a tenuous financial footing. Indeed, the Part A trust fund has not been on actuarially sound footing (such as what would be expected of a private annuity) at any time since its creation.116

The extent to which Medicare, with its “promise now, pay later” approach, has succeeded in undermining the distinctively American virtue of thrift becomes obvious only by examining the program’s long-term projections. Figure 3 shows the present value of the Medicare trust fund across differing periods, and documents a $5.9 trillion deficit using a seventy-five year projection.

The Medicare Trustees estimate that this long-term actuarial imbalance can be corrected by immediately cutting benefits by 42% or increasing the taxes that fund Medicare by 71% or some combination of both.117 Of course, given the political dynamics of Medicare, neither of these eventualities will occur. Indeed, as the current controversy over adding a prescription drug benefit to Medicare makes clear, all of the pressures are to expand the program, not to bring its finances into long-term actuarial balance.

To summarize, we are lucky that no one has (so far) “connected the dots” of the following fundamental features of Medicare:

1. Short-term viability dependent on continuous addition of new participants/funds;

2. Unsustainable long-term promises;

3. Early “investors” paid off with subsequent “investor” contributions;

4. Arguments from security/fidelity/solidarity to ensure continued participation.

Once these dots are connected, people will realize that Medicare is a pyramid scheme structured on an intergenerational basis.118 Pyramid schemes are invariably shut down by the authorities as soon as they are discovered on the grounds that those who were suckered at the outset have no right to share their misery with others. The legal system imposes harsh penalties on pyramid scheme organizers because defrauding hundreds or thousands of people is much worse than defrauding a handful of people. Indeed, if anyone other than the United States government were running the Medicare program, those responsible would already be serving long prison terms for fraud. However, you cleverly positioned Medicare as a sacred intergenerational trust, with the result that all the political pressures are to preserve, if not expand, the pyramid scheme.

Despite our repeated efforts to disguise the truth about Medicare through the endless repetition of misleading rhetoric (principally the phrases “trust fund” and “lockbox”), many Americans are coming to realize that Medicare is, in fact, an elaborate intergenerational pyramid scheme. Indeed, no less a “New Democrat” authority than the New Republic has been forced to observe, “[I]f there’s a big problem with Medicare these days, it’s the program’s lack of longterm financial viability.”119 Thankfully, our framing of the Medicare program as a sacred intergenerational trust has significantly dampened the outrage that would otherwise result; the New Republic would not have been nearly as complacent had the sentence been: “If there’s a big problem with Enron these days, it’s the company’s lack of long-term financial viability.” Of course, the principal difference between Medicare and Enron is that Medicare’s “lack of long-term financial viability” is much worse than Enron’s.120

Although we have largely stifled the criticisms that pyramid schemes usually engender, we must expect the Medicare program (and its financing) to come under increasing scrutiny in the coming years. We have already contacted our affiliates on K Street and at various think tanks, who stand ready to defend the “virtue” of the Medicare program from its all-too-correct critics. The good news is that our efforts at destroying public education in the United States (along with our systematic resistance to vouchers) has rendered a large chunk of the population functionally innumerate.12′ The impassioned defenses of Medicare offered by most health policy analysts122 will accordingly be resolved at the level of rhetoric, instead of through simple addition and subtraction.123

Our success using entitlement programs to undermine thrift has benefited from our separate initiative discouraging the repayment of debts, which has borne fruit in the tax law. The tax code only allows the deduction of “ordinary and necessary” business expenses.124 In an influential opinion, the Supreme Court ruled that post-discharge repayment of debt was nondeductible because such conduct was not “ordinary and necessary.” Of course, if Americans retained their traditional virtues such behavior would have been not only “ordinary and necessary,” but appropriate, if not essential. Yet, justice Cardozo’s opinion made repayment of debt less likely, reinforcing lax attitudes rewarding indebtedness.

B. Truthfulness

As you predicted, entitlement programs have provided numerous opportunities for political dissembling. As noted previously, the ceaseless use of misleading terminology (for example, trust-fund and lock-box) is one aspect of the phenomenon. This terminology is used to suggest that Medicare administrators “save” contributions even though the administrators spend all the money as soon as they receive it or loan it to the Treasury in exchange for a commitment that is binding on future taxpayers. So much for the purported superior ability of government to balance the interests of future generations against current voters!126 Politicians display a similarly flexible acquaintance with the truth when they assert that beneficiaries deserve enhanced benefits (such as a prescription drug benefit) simply because, at some time in the past, they paid some amount into the system. Such strategies are an invitation to disaster. Indeed, pyramid schemes self-destruct precisely because everyone takes out of the pot more than they put in.

The full effect of Medicare on political truthfulness is demonstrated by the whoppers politicians will tell to justify their attempts to “save” the program from self-destruction or to extract political advantage from the “reform” proposals of their opponents. Both Republicans and Democrats know they are unelectable if they speak candidly about the economic problems facing Medicare. Republicans accordingly package their reform proposals as attempts to “modernize” the Medicare benefit package and offer beneficiaries more options. Democrats focus their efforts on price caps and prayer. Neither approach is likely to produce even the minimum expected of a private insurance plan or investment-actuarially sound and economically sustainable promises to purchasers/investors.

Consider a concrete example. As you know, Medicare has two parts: Part A, which is paid for with payroll contributions, and Part B, which is paid for with general revenues and beneficiary contributions. Part A has been subject to periodic crises, as the Medicare trustees dutifully announce that the Part A trust fund will go bankrupt in a few years. There are only two possible strategies to address this problem: increase the flow of revenues into the Part A trust fund or decrease the flow of payments out of the Part A trust fund. Part B provides a seeming “third way”-shifting costs from Part A to Part B. This approach appears to solve the problem but actually makes it worse by hiding the severity of the problem and suggesting that Medicare’s problems can be addressed through sleight of hand.

One recent use of this strategy exemplifies the opportunities for mischief. In 1997, the Clinton Administration announced a plan to “save” Medicare. The plan included a broad array of statutory and regulatory changes, the most significant (and least noticed) of which was to transfer home health care from Part A to Part B.127 For most people, an expenditure is an expenditure, regardless of where the money comes from. Budgeting in the government works differently. Moving home health care out of Part A “saved” Medicare almost $100 billion and extended the life of the trust fund even though the budget absorbed the same cost elsewhere and the exact same amounts still had to be paid.l28 When asked about this strategy, HHS secretary Donna Shalala replied that the change was appropriate because it was consistent with the original structural design of Medicare.129 As you know, the road to hell is a superhighway paved with such stratagems and justifications.

Such behavior is, of course, bipartisan. We fully expect that the debate in the 108th Congress over creating a Medicare prescription drug benefit will provide us with numerous additional examples of such conduct and rhetoric. Unfortunately, your deadline for submission of this memo precludes me from including what we at DISS fully expect to be the pinnacle of partisan political rhetoric.

IV. Conclusion

All of the building blocks are in place for our plans to destabilize the virtue of the American republic. Although actuarial estimates vary somewhat (regrettably, we have not succeeded in suborning all the actuaries), the Medicare budget is heading for a demographic brick wall at an accelerating rate. Every attempt to impose fiscal discipline triggers squeals of outrage from affected providers, beneficiary groups and true believers in the intergenerational pyramid scheme. To date we have forestalled every attempt to comprehensively reform Medicare and we are confident that we will be able to do so in the 108th Congress.

Our best calculation is that the Medicare program will completely implode within two generations. Efforts to “reform” Medicare will extend the process only slightly, while simultaneously breeding dissension and class warfare-confirming the predictions outlined in your original memo.130 As long as no one learns of our plans, we look forward to an ever-increasing United States market share. Best of all, we obtain this increase in market share without any further promotional/recruiting expenditures on our part. You have replaced the virtuous circle at the heart of the American republic with a vicious circle.131 All of us in the North American division of DISS bow our horns in awe of your subtle genius.

Have a hellish day.

Underling Demon 666



Of course, it is libelous to suggest that the most successful program of Johnson’s Great Society is a demonic plot. However, satire provides a tool for exploring some of Medicare’s problems in a less confrontational manner than would otherwise be the case. At least that’s my story and I’m sticking to it.

To be sure, many of Medicare’s defenders react to even the slightest criticism of their program with a ferocity that demonstrates that their enthusiasm has more to do with ideology than the actuarially sound/goo-goo approach they would insist on if we were talking about anything other than Medicare. Imagine the cries of righteous indignation that we would hear from Medicare’s defenders if Congress established a program with similar spending projections and unimpressive quality to secure weapons for the military instead of health care for the elderly.

Satire has the potential to provoke the program’s defenders to at least start to acknowledge some of Medicare’s problems. Of course, it would be foolish to be overly optimistic about how much Medicare’s defenders are likely to acknowledge. Indeed, it is likely that Medicare’s defenders will get stuck at either stage 1 (denial) or stage 2 (anger), instead of progressing to bargaining (stage 3) or depression (stage 4)-let alone acceptance (stage 5).132

Consider what happened when I presented some (considerably less pointed) remarks on Medicare at the conference at the Washington & Lee University School of Law. One of Medicare’s most enthusiastic supporters responded by making an impassioned speech that it was improper to describe Medicare as a “Ponzi scheme,” and the program should not be judged by the standards that would apply to a private pension because it was actually a “sacred bond” between the generations.133 His words brought enthusiastic applause from those members of the audience who had heard enough bad news and were more than ready to ignore Medicare’s problems on the basis of political sloganeering. Yet, this “explanation” provides no basis for believing that Medicare should not be judged by the standards of any other government expenditure or private investment, let alone a defensible theory for understanding how any given act of Congress magically becomes a “sacred bond between the generations.” Instead, this “explanation” is, at best, nothing more than an exercise in sophistry and, at worst, simply another example of the “wishing makes it so” approach to Medicare that is pathonemonic of the program’s more vehement defenders.134

If Medicare really were a sacred bond between the generations, Medicare reform would not be a live issue on the political agenda, which it is. There would not have been a bipartisan Commission on Medicare reform, which there was.135 The bipartisan Commission would not have considered moving the program from a defined benefit to a defined contribution approach, which it did.136 There certainly would not have been a clear majority (albeit not a supermajority) for this approach, which there was.137 Stated simply, Medicare reform is a live issue because Medicare is not a sacred bond between the generations. It’s just a program and a pretty mediocre one at that.

The depth and sincerity of Medicare defenders’ faith in the program (and in centralized command-and-control administered pricing systems more generally) should not obscure the reality that Medicare’s philosophical foundations are contested and up for reconsideration to a degree not seen since the program’s enactment. Given this scrutiny, it is worth considering how Medicare fares in light of the parable that Milton Friedman told when he was honored for his lifetime achievement at the White House on May 9, 2002:

My views on government spending can be summarized by the following parable. If you spend your own money on yourself, you are very concerned about how much is spent and how it is spent. If you spend your own money on someone else, you are still very much concerned about how much is spent, but somewhat less concerned about how it is spent. If you spend someone else’s money on yourself, you are not too concerned about how much is spent, but you are very concerned about how it is spent. However, if you spend someone else’s money on someone else, you are not very concerned about how much is spent or how it is spent.138

Three guesses as to which of the four formulations best describes Medicare-although the answer does depend on one’s position on the political spectrum and on whether one is currently a Medicare beneficiary or provider of services to the same. Of course, it is possible that Friedman’s insight has nothing to do with the debate over Medicare and the preferences of Medicare’s supporters.139 It is also possible that the moon is made of green cheese. To be sure, literature provides a complementary explanation for the refusal of Medicare’s proponents to face actuarial reality. As Saul Bellow once noted: “A great deal of intelligence can be invested in ignorance when the need for illusion is deep.”140

Another issue is whether the observations in the DISS memorandum are falsified or confirmed by the passage of the Medicare Prescription and Modernization Act of 2003 (the Act). As any fair minded reader must acknowledge, six of the seven deadly sins (avarice, gluttony, envy, lust, anger, and vanity) were on full display during legislative deliberations, and there is no question that the Act reflects the influences of each and every one of them.141 Sloth is the only one of the seven deadly sins that appears to be inconsistent with the Act-but there was legislative sloth in addressing Medicare’s budgetary prospects. Indeed, if anything, the Act actually worsened Medicare’s long-term financial outlook. Unfortunately, there has been no further communication from DISS, so it is impossible to say what Underling Demon 666 (let alone the Devil) make of the Act. Stay tuned for further developments.

Finally, during the symposium, Professor Oberlander accurately described Medicare as a flower-child-to which I retorted that it was the only flowerchild I was aware of with $250 billion per year with which to fix prices and interfere with the functioning of the market for health care services. A more devastating come-back escaped me at the time, but occurred to me later. In the immortal words of Dr. Evil, “There’s nothing more pathetic than an aging hipster.”142

David A. Hyman*

* Professor of Law, University of Maryland, and Special Counsel, Federal Trade Commission. No one who reviewed this article in advance of publication wished to have that fact known. Even more than usual, none of the opinions expressed in this Article should be imputed to the Federal Trade Commission (FTC) or to any of its Commissioners. This article is dedicated to Nancy Sprague, who taught me how to write. Learning how to write satire and gothic horror (and this article qualifies as both) was just a bonus.

Copyright Washington & Lee University, School of Law Fall 2003

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